A group health plan sponsor and its administrator are responsible for managing the plan and its assets. In order to properly manage the plan’s day-to-day operations and satisfy its fiduciary responsibility, a plan sponsor will hire a third party administrator yet continue to serve as the administrator as defined by the Employee Retirement Income Security Act (ERISA). Therefore, the plan sponsor must have a clear understanding of the laws and regulations to which the plan must adhere and document that understanding in a Plan Administration Manual. Without such a manual, plan administrators risk running afoul of regulatory and compliance issues which can be costly.
Regulations That Apply to Self-Insured Plans
Fully-insured health insurance plans are mostly regulated at the state level. Non-governmental, self-insured health plans, however, are not subject to state insurance laws and oversight but instead regulated at the federal level and subject to ERISA. ERISA does not preclude other health benefit plan federal regulations that fall under its scope or federal plan coverage mandates, which means there are many other regulations that plan administrators need to understand to properly administer a health plan. Some examples include:
- Consolidated Omnibus Budget Reconciliation Act (COBRA)
- Health Insurance Portability and Accountability Act (HIPAA)
- Tax Equity and Fiscal Responsibility Act (TEFRA)
- Pregnancy Discrimination Act
- Americans with Disabilities Act (ADA)
- Age Discrimination in Employment Act
- Economic Recovery Tax Act (ERTA)
- Deficit Reduction Act (DEFRA)
- Families First Coronavirus Response Act (FFCRA)
Since regulations are always changing, plan administrators must keep up with these adjustments and implement appropriate controls to maintain compliance. Some examples that will impact 2022 include the No Surprises Act, Price Transparency Act, and Non-Quantitative Treatment Limits Act.
A Comprehensive Framework for Administration
The manual should provide a comprehensive framework for plan administration and address the sponsor’s fiduciary responsibility to:
- Act solely in the interest of plan participants and their beneficiaries with the exclusive purpose of providing benefits to them
- Carry out their duties prudently
- Follow the plan document
- Hold plan assets, if any, in trust
- Pay only reasonable plan expenses
Since plan sponsors generally use an internal administrative committee, the human resources department, and third party vendors to manage some or all of the day-to-day plan operations, it is important for the manual to contain a matrix that defines the party primarily responsible for compliance in each area. The policies and procedures on how compliance will be achieved, including delegating compliance areas to outside parties, may be documented within the Administrative Manual or in a separate Administrative Policies and Procedures Manual.
The most common problems we see when evaluating a plan sponsor’s administrative manual include:
- The manual does not exist
- The manual contains outdated, missing, or incorrect information
- The manual contains information that contradicts plan documents
- The manual is not readily accessible to all parties
To avoid these issues, have someone with sufficient industry knowledge and understanding of the laws and regulations that impact the plan draft, or at least review the manual on a routine basis.